5 Star Video Limited (in liquidation) v Bradbury
[2016] NZHC 3200
•23 December 2016
IN THE HIGH COURT OF NEW ZEALAND
WELLINGTON REGISTRY
CIV-2016-485-188
[2016] NZHC 3200
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of 5 Star Video Limited (In Liquidation)
BETWEEN
5 STAR VIDEO LIMITED (IN LIQUIDATION)
First Plaintiff
AND
VIVIAN JUDITH FATUPAITO AND ANDREW HAWKES
Second Plaintiffs
AND
DAVID GRAHAM BRADBURY
Defendant
Hearing: 22 August 2016 Counsel:
K C Francis for Plaintiffs
No appearance for Defendant
Judgment:
23 December 2016
JUDGMENT OF CLARK J
Introduction
[1] In this claim 5 Star Video Ltd (in liquidation) (the company) and its liquidators seek judgment against the defendant in respect of a sum borrowed by the defendant from the company by way of personal drawings. The plaintiffs also seek a declaration under s 300 of the Companies Act 1993 (the Companies Act) that the defendant is personally liable for debts or other liabilities of the company and a direction that the defendant pay those sums to the second plaintiffs. Thirdly, the plaintiffs seek to
5 STAR VIDEO LIMITED (IN LIQUIDATION) v VIVIAN JUDITH FATUPAITO AND ANDREW HAWKES [2016] NZHC 3200 [23 December 2016]
recover under s 301 of the Act compensation from the defendant for breaches of his duties as a director.
Formal proof
[2] The plaintiffs filed the proceeding in the High Court at Wellington on 22 March 2016 and personally served the defendant on 6 April 2016. The defendant took no steps and, on 26 May 2016, the plaintiffs sought judgment by default pursuant to r 15.9(1) of the High Court Rules. Accordingly, the proceeding was listed for formal proof. In terms of the conduct of a formal proof hearing I propose to adopt the approach of Duffy J:1
The fact the rules make provision for a Judge hearing a formal proof to hear from witnesses whose evidence has obviously not been challenged by an opposing party suggests to me that the level at which a Judge is required to satisfy herself regarding the plaintiff’s evidence is much the same as it would be if the proceeding had gone to trial.
Parties
[3] Since the filing of the proceedings one of the liquidators has vacated his position and Andrew Hawkes was appointed in his place. Consequently Ms Fatupaito and Mr Hawkes are the joint and several liquidators of the company.
[4] Prior to the hearing counsel for the plaintiffs foreshadowed that leave would be sought to substitute a plaintiff.
[5] At the beginning of the hearing I made an order for substitution under r 4.52 of the High Court Rules. The substitution is reflected in the intitulment.
Factual background
[6] The company was incorporated on 29 October 2007. It operated a DVD and video rental business. The defendant had been the sole director and shareholder of the company since the date of incorporation.
1 Ferreira v Stockinger [2015] NZHC 2916 at [35].
[7] The company stopped trading on or about 29 December 2014 when the lease for its premises expired. On application by the Commissioner of Inland Revenue (the Commissioner) the company was placed into liquidation on 19 May 2015.
[8]Unsecured creditors’ claims in the liquidation total $75,418.48.
Claims in the liquidation
[9] There are two unsecured creditors. Of the $75,418.48 the Commissioner has a total claim of $75,021.76. Eftpos New Zealand Ltd has a claim of $396.72.
[10] The company’s indebtedness to the Commissioner arises in relation to Student Loan Employer Tax, KiwiSaver Employee Deductions, KiwiSaver Employer Contributions, PAYE Tax Deductions, Goods and Services Tax, Employer Superannuation Contributions Tax, and Income Tax.
Student Loan Employer Tax
[11] The company made no payments in any of the 13 periods between 30 June 2013 and 31 December 2014. The amount owed (including interest and penalties) is
$5,842.18.
KiwiSaver Employee Deductions
[12] No payments were made in any of the six months between 31 July 2014 and 31 December 2014. The amount owing (including penalties and interest) is $801.73.
KiwiSaver Employer Contributions
[13] The company has outstanding contributions in respect of the six month period between 31 July 2014 and 31 December 2014. A total sum on $159.46 is owed under this head.
PAYE Tax Deductions
[14] In respect of the various periods ending between 28 February 2013 and 31 March 2015 the company defaulted on its tax obligations by failing to pay PAYE Tax Deductions at $36,330.29 (including penalties and interest) which remains owing.
Goods and Service Tax
[15] No payments were made in the periods June, July, September, October and December 2014 or January 2015. The sum of $1,310.87 remains owing in respect of unpaid GST inclusive of late payment penalties and interest.
Employer Superannuation Contribution
[16] This is the least significant debt. A total of $45.44 is owed for the periods 31 January, 31 March, 30 April, 31 May, 30 June, 31 July and 31 August 2014.
Income Tax
[17] The company first defaulted on its income tax obligation when it failed to pay Income Tax in the sum of $11,907.56 for the period ended 31 March 2012. A payment of $50.00 was made. Thereafter, the company defaulted on its Income Tax for the years ended 31 March 2013 and 31 March 2014 in respect of tax assessed as $2,877.00 and $3,164.70 respectively for 2013 and 2014. A default assessment was raised in the absence of a return for the year ending 31 March 2014. What were relatively small amounts have attracted late payment penalties and interest and the amount now owing to the Commissioner in respect of the unpaid Income Tax is $30,531.79.
[18]In summary the amounts owed are:
Tax Type
Student Loan Employer Tax
$5,842.18
KiwiSaver Employee Deductions
$801.73
KiwiSaver Employer Contributions
$159.46
PAYE Tax Deductions $36,330.29
Goods and Services Tax
$1,310.87
Employer Superannuation Contribution
$45.44
Income Tax
$30,531.79
Total
$75,021.76
[19] On liquidation, the company’s only assets were approximately 2,000 DVDs. The total amount realised after sales commission and payment of GST was $1,029.88. The liquidators have not realised sufficient assets in the liquidation to make any payments to preferential or unsecured creditors. The Commissioner is an unsecured creditor in the amount of $59,076.38 and EFTPOS New Zealand Ltd an unsecured creditor in the sum of $396.72.
Pre-liquidation affairs of the company
[20] Following their appointment the liquidators commenced investigations into the financial affairs and dealings of the company in accordance with their duties under s 253 of the Companies Act.
[21] The defendant was provided with formal written notice under s 261 of the Companies Act to provide the liquidators with information about the business, accounts and affairs of the company. As well a s 261 notice requiring the defendant to produce documents relating to the company was served on the defendant.
[22] No documents were received from the defendant. Consequently the liquidators applied under s 266(2) of the Companies Act for an order requiring the defendant to attend for examination and produce documents.
[23]Subsequently, the defendant provided the following documents:
(a)bank statements for the period 24 December 2012 to 23 December 2014;
(b)a completed director’s questionnaire; and
(c)an Excel cashbook for the period December 2011 to February 2014.
[24] The liquidators have received no financial statements of the company. Based on the review of the company’s records undertaken by the liquidators’ staff and the liquidators’ investigation Ms Fatupaito (one of the plaintiffs) deposed as to her understanding that no financial statements were prepared for the company between the date of incorporation and the date of liquidation.
[25] Ms Fatupaito’s further evidence was that the liquidators have no reliable way to definitively determine the financial position of the company at any given time. This leaves substantial uncertainty regarding the actual assets and liabilities of the company for the relevant period. In her experience this would create difficulty in keeping track of, and accounting for, the tax payable to the Commissioner. And, of course, the company failed to pay its tax debts when they became due.
Recovery of monies drawn or paid from company’s bank account
[26] It is an established principle that advances by a company to shareholders are debts owed by the shareholders to the company and are repayable on demand.2 Muir J’s summary of the relevant principles includes this passage:3
In the absence of an explanation, drawings must be treated as advances from the company to the shareholders that are repayable on demand. They remain as repayable advances unless and until a company resolution classifies them otherwise. When the company’s accounting records provide no explanation for the drawings in the shareholders current account, they must be treated as advances from the company to the shareholders. The onus is on the defendants as directors and fiduciaries of the company to account to it for funds and establish the legitimacy of any funds taken from the company; in other words, to explain what has become of company property in their hands.
2 Thom Contractors Limited (in liquidation) v Thom HC Auckland CIV-2008-404-6829, 28 April 2009 at [16]; New Zealand Game Meats Export Ltd (in liq) v Lau HC Whangarei CP 34/98, 19 March 1999 at [12]–[13]; Re Samarang Developments Ltd (in liq) HC Christchurch CIV-2003- 409-2094, 30 September 2004 at [55].
3 Mizeen Painters Ltd (in liq) v Tapusoa [2015] NZHC 826, [2016] NZAR 423 at [24] and [25].
[27] From the limited source documents available and in the complete absence of adequate accounting records the liquidators were required to reconstruct the company’s transactions.
[28] The primary sources of information were the statements for the Westpac bank account operated by the company in the name of Video Tonite. Statements provided were for the period 24 December 2012 to 23 December 2014. The defendant stopped using the account after this date as the company closed its business shortly afterwards. The defendant had informed the liquidators that the company stopped trading around 29 December 2014 when its lease expired.
[29] The statements reveal a number of transactions inconsistent with the business expenditure of the company. The liquidators prepared a schedule of personal drawings by the defendant from the company’s account totalling $30,626.35. The full schedule of transactions was appended to the statement of claim. That schedule was provided to the defendant under cover of a letter of demand dated 10 November 2015 from the liquidators. Specifically, demand was made for payment of, or a proposal to pay, a total deficit of $98,127.00, which included liquidators’ costs and legal fees.
[30] Although the schedule of personal drawings attached to Ms Fatupaito’s affidavit ran to some six and a half pages examples of some of the expenditure are:
(a)New World;
(b)Buckhorn Bar & Grill;
(c)Karori Wgtn WBC ATM (cash withdrawal);
(d)Word of Mouth Food;
(e)Unichem;
(f)Kirkcaldie & Stains;
(g)Model Crafts & Hobbies;
(h)Sona’s Superette;
(i)Backbencher Pub & Café;
(j)Pizza Hut; and
(k)Groom Barbers Style.
[31] I have scrutinised the schedule compiled by the liquidators to satisfy myself of the nature of the drawings. With the possible exception (and I emphasise “possible”) of monthly Telecom phone account payments I have no doubt that they were for the defendant’s personal purposes. The Telecom payments ranged from less than $100 to
$1,651.90 on one occasion. A video store can be expected to run a telephone account to deal with that side of the rental business which is transacted by telephone inquiry and bookings. However, even if that might be the case, the fact is that the liquidators have concluded the sums were withdrawn from the company’s bank account for the defendant’s own purposes and in that context the onus is on the defendant to establish that any item in dispute relates to business expenditure.4
[32] Ms Fatupaito understands that the defendant disputes some of the personal drawings as legitimate business expenses but she has seen no evidence suggesting that any of the payments comprising the personal drawings related to the business of the company.
[33] The defendant has not established that any amount relates to business expenditure. Consequently, there is no basis for the Court to conclude other than that the personal payments represent drawings by the defendant from the company which are repayable on demand.
[34] The evidence is that the liquidators demanded from the defendant the repayment of personal drawings to a total value of $30,626.35. At the time Ms Fatupaito swore her affidavit no response had been received. The defendant has
4 Morgenstern v Jeffreys [2014] NZCA 449 at [58] cited by Lang J in Madsen-Ries v Petera [2015] NZHC 538 at [23].
not discharged the onus on him to establish that any disputed items relate to business expenditure.
[35] The plaintiffs have succeeded in establishing that the company should recover the sum of $30,626.35 under this head.
Insolvency of the company
[36] Under the test for solvency prescribed by s 4 of the Companies Act a company is required to be both balance sheet and cash flow solvent. The former requires the value of a company’s assets to be greater than the value of its liabilities, including contingent liabilities. Cash flow solvency requires a company to be able to pay its debts as they become due in the normal course of business. A company will be insolvent if it fails either limb of the solvency test.
[37] As best as the liquidators have been able to reconstruct the company’s actual financial position given the complete absence of any adequate accounting records, the company failed the cash flow solvency test, possibly as early as 31 March 2012.
[38] By that time the company owed the Commissioner $11,907.56 in respect of unpaid Income Tax. That debt remained unpaid and began to accrue significant interest and penalties. Ms Fatupaito’s evidence was that it is unwise for companies that may be struggling to opt not to pay an involuntary creditor such as the Commissioner given the mounting nature of penalties and interest that accrue on tax debts. The evidence strongly suggests the company was unable to pay that debt.
[39] The company was demonstrably insolvent from 24 December 2012 when the company would not have been able to pay its debt to the Commissioner. The statements for the Westpac account show that at that time the company had only
$2,480.38.
[40] Ms Fatupaito considered it was reasonable to infer the company was in fact insolvent from the time it failed to pay its debts to the Commissioner as they fell due on 31 March 2012. Ms Fatupaito is an accredited insolvency practitioner with over 30 years insolvency experience and is regularly appointed as a liquidator. I accept that
Ms Fatupaito’s opinion is likely to be correct and the company was insolvent from 31 March 2012 when it failed to pay its debts.
Second cause of action: failure to keep adequate accounting records
[41] Under this head the plaintiffs seek a declaration under s 300(1) of the Companies Act that the defendant is personally liable for such part of the debts or other liabilities of the company that the Court considers just.
[42] It is contended that the failure by the defendant to comply with his duty to keep adequate accounting records and to prepare complying financial statements has:
(a)resulted in substantial uncertainty as to the assets and liabilities of the company;
(b)contributed to the company’s inability to pay all of its debts;
(c)caused the liquidators to incur fees and expenses that would otherwise not have been incurred; and
(d)substantially impeded the orderly liquidation of the company.
[43]As a result it is said the defendant has caused:
(a)loss to creditors; and
(b)the liquidators to incur fees and expenses that would otherwise not have been incurred.
[44] The plaintiffs contend that the defendant failed to keep adequate financial statements and accounting records for the company and failed therefore to comply with his obligations under s 194 of the Companies Act and s 10 of the Financial Reporting Act 1993. This failure is said to have contributed to the loss suffered by the company’s creditors because, without financial statements, or similar financial
records, the defendant was unable to make properly informed decisions as to the company’s financial position and whether it was able to meet its due debts.
[45]Mr Francis submitted that:
The financial records of companies are an essential tool permitting liquidators to fulfil their obligation to protect creditors’ interests (being a principal duty under s 253 of the Act). This is recognised by the criminal sanctions that follow for failing to keep records, and in the definition of the solvency test. It is also implicit in the duty not to trade recklessly or fraudulently.
[46] The obligation to keep accounting records is imposed by s 194 of the Companies Act.
194 Accounting records must be kept
(1)The board of a company must cause accounting records to be kept that—
(a)correctly record and explain the transactions of the company; and
(b)will at any time enable the financial position of the company to be determined with reasonable accuracy; and
(c)will enable the directors to ensure that the financial statements of the company comply with section 10 of the Financial Reporting Act 1993 and any group financial statements comply with section 13 of that Act; and
(d)will enable the financial statements of the company to be readily and properly audited.
(2)Without limiting subsection (1), the accounting records must contain—
(a)entries of money received and spent each day and the matters to which it relates:
(b)a record of the assets and liabilities of the company:
(c)if the company’s business involves dealing in goods—
(i) a record of goods bought and sold, except goods sold for cash in the ordinary course of carrying on a retail business, that identifies both the goods and buyers and sellers and relevant invoices:
(ii) a record of stock held at the end of the financial year together with records of any stocktakings during the year:
(d)if the company’s business involves providing services, a
record of services provided and relevant invoices.
…
[47] Section 194 was amended by the Financial Reporting (Amendments to Other Enactments) Act 2013. Accordingly, s 194 in the form I have set out above applies to the company’s reporting periods up until 31 March 2014. The amended s 194 applies from 1 April 2014 until the date of liquidation.
[48] The Courts have taken a consistent approach to the application of s 194 and its predecessor s 151 of the Companies Act 1955. The policy underpinning the provision is to prevent a company’s officer:5
from flying the company blind and upon its crash, and without having any information capable of sustaining the opinion, from then saying that he thought that he had more altitude.
[49] A company must keep such records as may be necessary and in whatever form is necessary to achieve the objectives set out in s 194(1).
[50] In particular, in Maloc Construction Ltd (in liq) v Chadwick the High Court held that the records must be such that they will, at any time, enable the financial position to be determined, without requiring explanation or reconstruction:6
These accounting records every company must cause to be “kept”. It has been held by the Court of Appeal in R v Bennett and Anor (1985) 2 NZCLC 99,279 that the word “kept” is not limited to retaining or storing such records as happen to come into possession. It imports as well the obligation to create those records necessary to conform to the descriptions in subsec (1) and (2) which are not already in existence and retained.
The records must speak for themselves. They must, without more, do or enable to be done, the matters spelt out in the four paragraphs of subsec (1). It does not avail a company to say, as was said here, that those objectives could be achieved by reference to the accounting records available, plus further information and explanations that can be furnished by a company officer or employee.
5 Manning v Cory [1974] WAR 60 (WASC) at 62–62, per Burr J.
6 Maloc Construction Ltd (in liq) v Chadwick (1986) 3 NZCLC 99,794 at 8.
The records themselves do not have to show the financial position of the company. They must be such that they will, at any time, enable that position to be determined. This requirement is not complied with if the company keeps only basic accounting records such as cheque books, deposit books, bank statements, invoices and the like. It may be that using such basic records an accountant could construct further records that would enable the financial position of the company to be determined. But the section requires that this basic accounting information should be assembled and recorded in such a way that the record itself will not only enable the financial position to be determined, but will enable that to be done at any time: see the observations of Burt J in Manning v Cory [1974] WAR 60 at pp 60-63 when considering a similar but not identical provision.
The financial position must be able to be determined “with reasonable accuracy”. This connotes an objective test. It also indicates that the degree of accuracy able to be achieved is not that sort of precision to be expected from fully prepared accounts — only a reasonable degree of accuracy needs to be able to be achieved.
[51] The liquidators have not been provided with any financial statements, budgets, cash flows or management reports. The defendant has provided only limited documents.7
[52] I accept the submission on behalf of the plaintiffs: these records are inadequate. The bank account statements do not provide adequate explanation regarding the nature of the transactions. In respect of payments to the defendant, the bank statements are the only records and are not accompanied by any internal record keeping such as a ledger.
[53] There is no adequate ability to understand from the bank statements the true assets of the company and no ability at all to see the company’s liabilities. As Mr Francis submitted, were it not for the proofs of debt filed in the liquidation, the liquidators would effectively be blind to the company’s liabilities.
[54] Failure to keep these records is a breach of s 194(1)(a) which requires accounting records to be kept that correctly record and explain the company’s transactions. The failure to keep proper accounting records and their absence has, as Ms Fatupaito deposed, impeded the orderly liquidation of the company and has therefore been to the detriment of the company’s creditors.
7 See above at [23].
[55] Additionally, the company’s failure to keep any cashflow projections, management accounts or budgets meant the defendant was unable, as the director of the company, to ascertain the financial position of the company with any certainty. In fact, because personal payments from the account were not recorded, the defendant would have been unaware of the amount of the assets available to the company in the form of the overdrawn shareholder’s current account.
[56] Exacerbating the position was the failure to prepare any cash flow projections which meant the defendant would have been significantly impeded in his ability to reach an informed decision as to when the company was to cease carrying on business. The position is analogous to the scenario before Lang J in Madsen-Reis v Petera in respect of which he said:8
[81] Secondly, the company never produced cashflow reports or management accounts to enable the directors to ascertain the financial position of the company at any time with reasonable accuracy as s 194(1)(b) requires. The regular creation of this type of management tool was essential in the present case given the fact that the directors were aware from an early stage that the company was unable to meet its tax obligations. Had such reports been kept, Mrs Petera would not have been surprised or shocked to learn that the company owed more than $100,000 in tax arrears. She would have been aware of that fact because the company’s accounting records would have kept her abreast of the true position at all times.
[82] This meant that to a large extent the directors were effectively flying blind as far as the company’s true financial position was concerned.
[57] In short and in essence: the failure to comply with s 194 meant the defendant was unable to properly assess the company’s solvency and whether it was able to meet its due debts. Had records been prepared the extent of the company’s assets and liabilities would have been clear to the defendant. The defendant would have been in a position to make informed decisions about whether to draw from the company for his personal benefit and whether to continue trading once the company was unable to pay its debts as they fell due.
[58] The liquidators could have relied on accounts prepared for the company in investigating and considering its financial position but in their absence were required to reconstruct the position with reference to the available documents. As Ms Fatupaito
8 Madsen-Ries v Petera, above n 4.
deposed this significantly increased the time and consequently the cost of the liquidators’ investigation.
[59] As it happens a current account debt owing by the defendant, not recorded in any of the company’s documentation, was identified by the liquidators. It would not have been known to the liquidators but for their reconstruction investigation.
Remedy
[60] There being no accounting records the defendant was effectively flying blind in terms of the company’s true financial position. The defendant could not know with certainty the size of the company’s tax debt, the extent of the company’s inability to pay its debts or whether the company had (or was likely to have in the future) any reasonable prospect of meeting its debts. My finding that the defendant breached his statutory obligation under s 194 enables the Court to exercise its remedial discretion under s 300 of the Companies Act which provides:
(1)Subject to subsection (2), if—
(a) a company that is in liquidation and is unable to pay all its debts has failed to comply with—
(i)section 194 (which relates to the keeping of accounting records); or
(ii)section 201 or 202 (which relates to the preparation of financial statements or group financial statements) or any other enactment that requires the company to prepare financial statements or group financial statements; and
(b) the court considers that—
(i)the failure to comply has contributed to the company’s inability to pay all its debts, or has resulted in substantial uncertainty as to the assets and liabilities of the company, or has substantially impeded the orderly liquidation; or
(ii)for any other reason it is proper to make a declaration under this section,—
the court, on the application of the liquidator, may, if it thinks it proper to do so, declare that any 1 or more of the directors and former directors of the company is, or are, personally responsible, without limitation of liability, for all or any part of the debts and other liabilities of the company as the court may direct.
(2)The court must not make a declaration under subsection (1) in relation to a person if the court considers that the person—
(a) took all reasonable steps to secure compliance by the company with the applicable provision referred to in paragraph (a) of that subsection; or
(b) had reasonable grounds to believe and did believe that a competent and reliable person was charged with the duty of seeing that that provision was complied with and was in a position to discharge that duty.
(3)The court may give any direction it thinks fit for the purpose of giving effect to the declaration.
(4)The court may make a declaration under this section even though the person concerned is liable to be convicted of an offence.
(5)An order under this section is deemed to be a final judgment within the meaning of section 17(1)(a) of the Insolvency Act 2006.
[61] The evidence has established to my satisfaction that the defendant’s failure to comply with his obligation to keep proper accounting records has not only contributed to the company’s inability to pay all of its debts but has resulted in substantial uncertainty as to the assets and liabilities of the company and has substantially impeded the orderly liquidation of the company. To that extent all three limbs of s 300(1)(b) are met. The Court needs only to be satisfied of one of those limbs in order to grant a declaration of responsibility for liability.
[62]The plaintiffs are entitled to an order under s 300(1).
Recoverability of liquidation expenses
[63] Different approaches have been taken to the question of whether liquidators’ costs in undertaking liquidation are recoverable. It is generally accepted that the costs of administering a liquidation are incurred regardless of whether or not a company’s directors are liable under s 300 or s 301.9
[64] In this case the plaintiffs have established a link between the liquidators’ costs and the defendant’s failure, in breach of s 194, to keep adequate accounting records.
9 For example, Madsen-Ries v Twine [2015] NZHC 227; Madsen-Ries v Petera, above n 4, in which
Madsen-Ries v Twine is cited at [111].
The liquidators were compelled to undertake additional investigations in order to clarify the company’s financial position and the time which would normally be taken was significantly increased by the need to reconstruct the company’s financial position. This in turn increased the cost of the liquidators’ investigation and impeded the orderly liquidation of the company.
[65] In these circumstances it is available to me to order that the defendant pay the unmet costs of the liquidation which, as at 11 August 2016, totalled $12,723.96 plus GST and disbursements invoiced to that date.
[66] A similar approach was taken by Woolford J who found in Grant v Guo10 that the defendant could have avoided liquidation by paying the creditors, using the company’s assets, if the company’s financial position had been accurately recorded.
[67] In counsel’s submissions costs of the liquidators in the sum of $19,723.96 was sought. That sum comprises the $12,723.96 about which there was evidence plus an additional amount representing costs and expenses which the liquidators expected would be incurred. There is no evidence of the additional, “expected” costs. I am only prepared to direct payment of those costs which are in evidence and which can be presumed to reflect the costs of concluding the liquidator’s investigation to the point where they considered they were in a position to seek judgment.
[68]To summarise the circumstances in which this application is made:
(a)Significant work was required for the liquidators to reconstruct the company’s accounts due to the failure of the defendant to arrange for the preparation of any financial statements.
(b)By failing to have any financial statements prepared the defendant lost any opportunity to ascertain the financial state of the company and to avoid liquidation.
10 Grant v GUO [2015] NZAR 1585 at [54].
(c)The evidence strongly suggests that the company may have remained solvent but for the defendant’s sustained course of conduct in withdrawing funds from the company.
Result: Summary
[69] My conclusions and findings in respect of the first two causes of action make it unnecessary for me to consider the breaches of director’s duties raised by the third cause of action.
[70] In respect of the first cause of action judgment is entered in favour of the plaintiffs against the defendant in the sum of $30,626.35 plus interest under the Judicature Act 1908 from the date of the first demand being 10 November 2015.
[71] In relation to the second cause of action a declaration is made under s 300(1) of the Companies Act that the defendant is personally liable, without limitation of liability, for the debts of the company.
[72] I direct pursuant to s 300(3) of the Companies Act that the defendant contribute to the liquidation of the company the sum of:
(a)$48,535.26 (being the remainder of the amount owing in the liquidation); and
(b)$12,723.96 plus GST and disbursements as at 11 August 2016 (being the costs incurred by the liquidators.
[73]The plaintiffs are entitled to costs.
Karen Clark J
Solicitors:
Meredith Connell, Wellington for Plaintiffs
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